UK banks downgraded as stress test fears grow
RBS may need billions in extra capital as a result of new stress tests by European authorities
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Friday 14 October 2011
Signs that the Government has become less likely to support lenders led to another credit rating downgrade for Lloyds and Royal Bank of Scotland yesterday against the backdrop of concerns that new European stress tests could leave the sector in need of billions of pounds of extra capital.
The ratings agency Fitch lowered its credit score for both Lloyds and RBS to A from AA-minus, reflecting its view that "support dynamics are changing in the UK". Fitch also put Barclays on negative watch, meaning that it could be downgraded in the future.
"The banking system is not only large relative to the UK economy but there is also more advance political will to reduce the implicit support for the country's banks," Fitch said, citing the Vickers Commission's recommendations to ring-fence retail banks from riskier investment operations.
The move followed similar action by Fitch's rival agency Moody's last week, and came amid fears that RBS could end up needing billions in extra capital as a result of new stress tests by European authorities.
Officials are working on plans to recapitalise the banking system as they seek to protect it from the sovereign debt crisis. The European Banking Authority (EBA), which is studying capital needs at systemically important lenders, is expected to apply hefty discounts to the sovereign bond holdings to assess their ability to withstand the crisis. Reports suggest that it could also raise its threshold for what it considers an adequate capital cushion or core tier one capital ratio to 9 per cent.
With the details still being worked out, Credit Suisse analysts said that, based on the reports and after applying a tougher stress test than that applied by the EBA when it last studied balance sheets in the summer, RBS could need about €19bn (£16.5bn) in extra funds. Germany's Deutsche Bank and France's BNP Paribas could require up to €14bn each, while Société Générale and Barclays "would need roughly €13bn".
But the various moving parts – the final level of discounts on sovereign debt and the required capital ratio are still under discussion – mean that other analysts came to different conclusions. Evolution Securities, for example, said that UK banks had already done the heavy lifting by scrapping dividends and shrinking balance sheets, and did not require additional capital.
The analysis came as JosephAckerman, the chief executive of Germany's Deutsche Bank, warned: "It is not the capital position which is the problem but the fact that sovereign debt as an asset class has lost its risk-free status."
Apple has been hit by complaints about the 1.1GB download
Much-loved cartoon character returns - without Sir David Jason
Liam Neeson's Downton dreams
Matt Smith is set to join cast of the Jane Austen classic - with a twist
Actress to appear in second series of the hugely popular crime drama
- 1 Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
- 2 Scottish independence: Learn from Quebec's mistakes and beware of promises. Vote Yes.
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Revealed after 75 years of secrecy: 'Fifi' the glamorous WW2 special agent who tested British spies' resolve
- 5 Have you heard about the film Singapore has banned its people from watching? Well, you have now
Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
Scottish independence: Final opinion polls show undecided voters could swing result either way
Scottish independence: Almost half of No voters have felt 'personally threatened' by the Yes campaign
Isis release 'Flames of War' video warning Obama of attacks troops could face in Iraq
Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
iJobs Money & Business
£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...